Actually, this is the bit that confuses me. I mean, if he already possessed powers from higher Realms and the types of Cultivation are independent, what difference does it make whether he’s in a 1☆ body or not? Shouldn’t he be able to use what he has without any problems, just as a pure Qi Cultivator can cast spells from higher Realms even whilst in a mortal body?
I don't know either, could be because an pure standard cultivator can use raw Qi to increase their physical prowess to par the spells temporarily. But again, as LB said, there are spiritualists out there that destroyed their own body and I doubt they have any problem casting their spiritual abilities. Probably because they are only soul/spirit, meanwhile a weak but existent body will suffer the drawbacks of the use of the soul meanwhile the soul won't?
I don't know really, despite the theories. Maybe Nicky will detail it more in future. Nonetheless it's in the book so it's a fact that Shengjue cannot use his spiritual abilities fully without causing his body to crumble.
If I remember correctly the Soul Cultivators that destroy their bodies and Dantian are the ones that are already very far along the Soul path and do it to fully embrace their Soul as their only vessel for power in their own Path.
I think the answer is simply that Sheng Jue is just too much of a Junior to have done this and therefore he cannot effectively exist and/or cultivate without at least some kind of body. Basically I think that his soul is just not strong enough on its own at NS to exist without a body, and that's why he's so obsessed with finding a strong body at least for the time being, before he can do the whole pure spirit thing.
As showcased by the Sovereign, we know that it's possible to cultivate not only two but all three paths to Godhood - them being Dao, Soul, and Body. And in fact many other Gods including TW did at least two paths (mainly Body and Dao). So to be honest why not? If as a Soul Cultivator you can possess and gain all the benefits of a Divine or any other bodily Bloodline without any drawbacks except a little insanity and DID, why wouldn't you? It's an incredible benefit actually, that only Soul Cultivators seem to possess, the drawback being you can only start actually cultivating Soul at NS.
But also a pure Qi Cultivator likewise suffers from the host body limitations, as showcased when we first meet LB. Granted she is much more powerful and advanced than Sheng Jue (Immortal+), but even she says that even with years of preparation, arrays, alchemy, and perfect hosts, she still can't even use a fraction of her power - otherwise she would just be able to do whatever she wanted (barring any of that bad Karma she talked about).
To us she may seem powerful even in a host body, but we have to consider the facts that:
a.) We are very weak and to us even a Xiantian like Chao seems incredibly powerful.
b.) Considering she is an Immortal Lord (I think), her displaying power similar to a Shangtian in a host is not even 0.0000000001% of her power going by Nicky's scaling, as even a super genius CF like Yue Yan can easily solo the whole PoMA planet without breaking a sweat, and that's like 5+ full Realms below an Immortal Lord.
c.) Sheng Jue did not have years of prep, Immortal Level knowledge, and infinite resources like LB to mould herself a perfect host that even after all that can't process the beforementioned percentage of her true power.
So in short - he is just a Junior that to us seems powerful because he uses stuff we can't yet, and even then he seems like he's not far off from a EX in total power level and capability to be honest. And he can't display his full power because his NS Soul would just rip apart the body he resides in even considering he can heal it, and LB suffers from the same thing but just has better prepared and therefore can display more of her power without ripping apart her vessel and the planet along with it.